As the trickledown juggernaut rolls on, it's time to rejuvenate the middle class

Extract from The Guardian

Wayne Swan
Populist polarisation has cost centre-left parties a presidency in the US and a referendum in the UK. In Australia it threatens the viability of both major parties

‘The market does many things well, but it is unparalleled at reinforcing inequality.’ Photograph: Teamjackson/Getty Images

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Friday 16 December 2016 10.32 AEDT


If the electoral landscape over 2016 has revealed anything, it’s the incredible potential energy that exists in western democracies. The polarisation of politics and the intensity of contemporary debate attest not so much to widespread apathy as to fulmination for genuine change, at both poles of the political spectrum. Victory will belong to the party which can best convert this ferment into kinetic energy.
In the United States and the United Kingdom, the harsh realities of right-wing populism are setting in. In Australia a narrowly re-elected Liberal prime minister once know for small ‘L’ liberal beliefs is behaving like a representative of the Republican Tea Party.
Progressive parties cannot afford to indulge in head-scratching and soul-searching while a viable, vibrant alternative to far-right populism exists. As I have written elsewhere, before the sound and fury of populism dies down, leaving a hollowed-out middle class, social democratic parties must seize the initiative and present a legitimate plan for policy change that works in the interest of the many, not just the few. For as long as the trickledown juggernaut rolls on, capitulation is not an option.
A common criticism levelled at those attacking the right-wing pursuit of trickledown economics is that the term is too broad, too slippery to constitute an ideology concrete enough to reject. Perversely, this is one of the strengths of trickledown economics: policies which entrench wealth concentration and ramify inequality can all be marshalled under one banner, while their advocates can claim, straight-faced, not to be marching anywhere but in the inexorable direction of “the market”.
The market does many things well, but it is unparalleled at reinforcing inequality. It hardly needs encouragement from trickledown policies which seek to cut corporate taxes, gut welfare and yank away the social safety net. Nor do progressives need to pay mealy-mouthed lip service to unmitigated market liberalism, which plays into the hands of the conservative agenda.

What not to do

Without doubt, the march of technology, globalisation and disruptive innovation can be a force for the common good. But there should be no reason to expect that the future owners of labour-saving robots will be any more willing than the past owners of labour-augmenting technologies to surrender their claims on the income distribution. And there is every reason to expect that the financial elite who have captured an ever-greater share of economic rent, while the return to real investment is at an all-time low, might be even shriller.
Uber, the paragon of market disruption, has a taxation record that almost makes BHP Billiton look like a respectable corporate citizen. When robotic cars replace drivers, should we expect another private sector champion to employ the ousted workers? Alternatively, if work becomes a thing of the past, how might any government fund a basic income when its tax base has been sapped by corporate tax evaders?

Progressives cannot sit back and offer vague platitudes about education and redistribution

Facing such entrenched opposition, progressives cannot sit back and offer vague platitudes about education and redistribution. Sustaining a world-class education system is vital, but as Larry Summers has summarised, trusting in education policy alone is largely “whistling past the graveyard”. Similarly, a redistributive agenda can offset the innate and often unjust polarisation of market incomes, but it cannot be the only plank of a progressive fiscal policy.
What is required instead, both economically and electorally, is an unapologetic rejuvenation of the middle class, supported by a purposeful state with democratic, not just corporate, interests at heart. To steal from the trickledown phrasebook, it’s not an enriched elite, but instead a flourishing middle class that represents the real rising tide to lift all boats.
It is important in making this point to take the right lessons from history. While it is fashionable and convenient to draw parallels between the political climate of 2016 and that of the 1930s, a more appropriate comparison might be with the early 1900s. Manuel Muñiz has argued that the widespread displacement of workers following the first Industrial Revolution heralded an age of unprecedented political upheaval across North America and Europe. Fascism, communism and two world wars followed before a new consensus was forged around the welfare state, which uprooted established institutions and paved the way for a more egalitarian society.

What to do instead

History might not repeat, but progressives can build upon some of its rhythms for our own times. Today, a viable alternative to populism can be built around inclusive prosperity along at least three, concrete pathways: pursuing activist fiscal policy; promoting and sustaining full employment; and nourishing the institutions that ensure the economy delivers for the society it purports to serve.
First, activist fiscal policy recognises that government is the natural countercyclical buffer against unbridled market forces. Progressive governments cannot and should not resist the trend to more open societies, but they can ensure that markets are opened fairly. Bob Hawke and Paul Keating recognised this by coupling their celebrated market oriented policies with progressive tax reforms that included a capital gains tax and a concerted attack on tax avoidance. The Labor government in which I was treasurer also recognised that fiscal policy can be harnessed to combat catastrophic demand failures during financial crises and fairly distribute the proceeds of a once in a generation mining boom. Activist fiscal policy also means broadening the conception of public investment, and focusing finance on those ends that promote truly inclusive growth.
Second, full employment is a non-negotiable objective for any progressive government. For many decades, long before Uber and Airbnb, the private sector has proven unable to consistently absorb the available labour force in meaningful employment. In developed economies with chronic shortfalls of consumption and investment, workers have long known what academic economists have recently realised: one worker’s job match is another’s missed opportunity. There is simply not enough labour demand to go around. Pushing the economy back to full employment restores the position of workers at the bargaining table, repairing the broken link between labour productivity and wages. Thus, progressive governments must redirect their emphasis from job training and reskilling initiatives and be willing to contemplate more ambitious programs of public investment and direct employment.
Finally, progressives must staunchly defend the institutions that support the otherwise disenfranchised. A renewed union movement, countervailing the bargaining power of profit-makers, must play its inimitable part in increasing workers’ wages and benefits, fostering economic mobility, increasing the middle-class share of incomes, reducing wage inequality and promoting a happier and healthier population. But workers must also be supported by progressive governments which preserve the social safety net, a decent minimum wage, an empowered and impartial Fair Work Commission, and the additional hallmarks of a good society.
Populist polarisation has cost centre-left parties a presidency in the United States and a referendum in the United Kingdom. In Australia it is a threat to the viability and standing of both major parties. The underlying income and wealth polarisation in western democracies isn’t about to turn around. The IMF has estimated that income polarisation in the US economy between 1998 and 2013 has cost the equivalent of a year of consumption expenditure. Unemployment and underemployment exact another irrevocable toll on economic output and a daily waste of human potential. Rather than lament what might have been, or succumb to vested interests whose siren song of competition applies to everyone but themselves, progressives must now bind firmly behind the inclusive prosperity agenda.
That agenda can’t be a third-way fudge clothed in the language of a “radical centre”. An inclusive agenda has at its core economic and social progress of working people wherever they live, whatever their colour or their gender. Working people are looking for social democratic representatives who are unapologetic about whose side they are on and what they believe in. They’re the values and the alternative they want us to fight for, harder than ever.